Investing in Global Smaller Companies Through ETFs

Small cap passive funds have the potential to boost long-term returns and they can play a key role in an investor’s portfolio

Dimitar Boyadzhiev 18 September, 2018 | 12:18PM

target bulls-eye investing in smaller companies can deliver better returns although performance can be volatile

Global small cap stocks have outperformed their mid- and large-cap counterparts by 2.5% per year on average over the last decade.  While returns have been impressive, they have been accompanied by higher levels of risk with small caps registering almost 15% higher standard deviation over the same period.

History teaches us that global small cap investors willing to hold their nerve through the choppier moments will be rewarded. Looking back over the last two decades, a period which includes the dot com crash and financial crisis of 2008 we can see that the chances of outperformance increased with the holding period. This suggests that small cap growth potential is best realised over longer time horizons.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
iShares MSCI World Small Cap ETF USD Acc3.56 USD-1.49
SPDR® MSCI World Small Cap ETF51.13 USD-1.27
Vanguard Glbl Small-Cap Idx GBP Acc215.73 GBP-1.49

About Author

Dimitar Boyadzhiev  is a Passive Strategies Research Analyst for Morningstar

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